Author Topic: Options for my parents' rental property in the Bay Area  (Read 1526 times)

jeromedawg

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Options for my parents' rental property in the Bay Area
« on: June 06, 2020, 03:46:43 PM »
Hi all,

My parents have a rental unit two doors down from them in the Bay Area (Alameda) where the tenants just moved out. My dad hasn't been doing so well mentally (major depression and anxiety issues) so my mom and brother (who lives nearby) were hoping that the tenants would move out as they were wanting to get out of the rental market there especially considering the tight rent control and heavily tenant-favored laws in that area.

That said, my brothers and my mom and I are throwing around ideas on what to do. My dad is obsessed with trying not to pay capital gains taxes (which is a mess for him to think about in his current state) but my parents don't want to deal with renting anymore (and between my brothers and I, we also would prefer not to get it back into the rental market). One idea that has come up is my parents gifting the property to us or to one of us. The property has been somewhat neglected and likely will need anywhere from $60k-$75k of work towards it to get it into a turnkey state. If it's gifted we would have to consider either fixing it up to flip, fixing up minimally (like the roof), or selling as-is.

Another idea my brother brought up is to make it a 'multi-family use property' that we keep within the family and aren't renting out (whether long-term or short-term). We would obviously be paying for utilities, property taxes, insurance, etc and splitting that either 3 ways or 4 ways (depending if my mom would like to stay on title). But my mom has always talked about having this other property be utilized for when she has my aunt or uncles (and or their families) in town or just for general "family" use (even dinner parties, etc and stuff like that).


Anyway, just trying to get some ideas on what else we ought to consider doing in this situation.
« Last Edit: June 06, 2020, 04:34:01 PM by jeromedawg »

waltworks

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Re: Options for my parents' rental property in the Bay Area
« Reply #1 on: June 06, 2020, 09:29:16 PM »
That's a sucky (emotionally) situation. I'm sorry.

I'm assuming that nobody in the family *needs* to sell this place for financial reasons, right? If that's the case, your biggest goals are:
1: Avoid family strife/further upsetting your dad.
2: Don't throw away a ton of money.

Really, though, it's mostly about number 1.

The best solution is to get rid of the property somehow. Keeping it for family use is a sure-fire way to cause strife, IMO - you'll all be on the hook for various costs, some people will use the property more than others, someone will do most of the actual handling of the day to day maintenance, etc. It will be easy to have things seem unfair to one or more parties.

I would hesitate to do any gifting of what I assume is a million dollar plus house without consulting an attorney who specializes in that. Capital gains is a bummer, but you can get yourself in a lot of trouble fast gifting a kid a property and then immediately selling it. You are going to need to basically do some estate planning for your parents here (or get them to do it) and an attorney will be money well spent.

-W

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #2 on: June 06, 2020, 09:56:48 PM »
That's a sucky (emotionally) situation. I'm sorry.

I'm assuming that nobody in the family *needs* to sell this place for financial reasons, right? If that's the case, your biggest goals are:
1: Avoid family strife/further upsetting your dad.
2: Don't throw away a ton of money.

Really, though, it's mostly about number 1.

The best solution is to get rid of the property somehow. Keeping it for family use is a sure-fire way to cause strife, IMO - you'll all be on the hook for various costs, some people will use the property more than others, someone will do most of the actual handling of the day to day maintenance, etc. It will be easy to have things seem unfair to one or more parties.

I would hesitate to do any gifting of what I assume is a million dollar plus house without consulting an attorney who specializes in that. Capital gains is a bummer, but you can get yourself in a lot of trouble fast gifting a kid a property and then immediately selling it. You are going to need to basically do some estate planning for your parents here (or get them to do it) and an attorney will be money well spent.

-W


Thanks - yea it stinks. It's a huge toll on my mom.

As far as selling the place, you're correct in that nobody *needs* to sell anything.

I think in general we want to relieve my parents of having to worry about another property or at least reduce that amount of worry - so the goal would be to take it off their hands or taking a majority of it off their hands somehow.

If we were to get rid of the property, say by sale, would you still recommend pouring 'investment' money into it to improve the value of the place to make it turnkey? It needs extensive work (new roof with proper venting, ventilation in bathrooms, bathroom gut/remodel, kitchen gut/renovation, asbestos removal, new water heater, new flooring, new fixtures, etc). It's an estimated $60-75k job but the estimation is that we'd probably get that $60-75k back and more (closer to a 100% ? return) based on the sale of a property w/ an identical floorplan across the street that sold turnkey recently).

As far as keeping this in the family, my initial thought was to consider just holding it for a year or two and then consider selling it then. One of my brothers seems interested in moving his mother-in-law in so yea that would likely complicate things.

I've reached out to the lawyer who helped us with some title stuff and am going to try to ask about this with her.

waltworks

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Re: Options for my parents' rental property in the Bay Area
« Reply #3 on: June 06, 2020, 10:56:09 PM »
To be clear, I think you need an attorney who does estates/trusts/etc, not a RE attorney. This is an estate problem, or will be down the road if you don't do it right. The RE part is pretty easy regardless of what you decide to do.

I'd probably fix it up as long as that can be done without tremendous extra stress/effort and everyone agrees.

Hard no on the brother's MIL moving in, unless he wants to just buy the place.

-W

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #4 on: June 07, 2020, 09:43:42 AM »
To be clear, I think you need an attorney who does estates/trusts/etc, not a RE attorney. This is an estate problem, or will be down the road if you don't do it right. The RE part is pretty easy regardless of what you decide to do.

I'd probably fix it up as long as that can be done without tremendous extra stress/effort and everyone agrees.

Hard no on the brother's MIL moving in, unless he wants to just buy the place.

-W

Thanks. We had a discussion last night and it got heated and stressful just discussing the inspection report (at a high level) and going through the various items then debating selling it. So much so that I saw my oldest brother breakdown and cry and I don't think I've ever seen that in my life... we're not close but that's still a big deal as a first time observation. Basically, it sounds like my brother who lives closest was pushing to keep it (esp for his MIL) but then wasn't being forthcoming about it. The weird thing is that this brother had his MIL and BIL come over to the house yesterday to view it (AND he called me telling me about her plan to reduce her cap gains taxes on a condo she owns by moving into it and living there for two years then selling, and that once she sells after that 2 years she could move into *this* property - and sort of implied that if he and my SIL owned it, it wouldn't be a big deal for her to do that... I have a sneaking suspicion that my SIL was or is pushing my brother hard to get their hands on the house). He spoke to me, my brother and I'm sure my mom all separately about this but none of know what he told the other and he didn't say anything about it on the call. He kept going back and forth between selling it, having it gifted to all three of us, or having it gifted to him (but I think he felt awkward pushing this as he didn't want to stir the pot and create controversy since it would sound as though this is extremely unfair).

It's obvious my mom knows that he wants to have his MIL live there yet she also didn't say anything on the call - I think it's because she may feel guilty because he has been doing A LOT for my parents (primarily because he lives within walking distance to them) and perhaps feels like it's justified for him to want this and thus didn't want to upset him so just didn't say anything. I could tell my brother is torn about what to do because he seemed awkward and not really wanting to push the option of 100% claiming the gift for himself and my SIL - that might explain why he has sort of been avoiding bringing it up directly. But it also doesn't help the situation. I can't *prove* that my SIL started any of this but it all signs seem to point towards it (why else would there be such a push for the MIL to live in the place? And I find it extremely odd and premature that they were already walking through it yesterday when my brother literally only discussed this with me in the past week).

Side note: I believe my SIL may feel this way because of an arrangement I had/have with my parents on the current property that my family and I live in (basically the condo we live in now was originally co-owned between my parents and I and, with advice from my parents' CPA, my parents have since gifted it to me. But to maintain 'fairness' in the overall estate, we have agreed to adjust the inheritance in the will to effectively 'split' the value of this place 3 ways between my brothers and I based on the net proceeds once we finally sell it and move into another place, which our horizon for is maybe 2-3 years *max*). It's a complicated situation and I wish we didn't do it this way but this happened a decade ago and the situation is not really the same either (this is our primary residence and not something we are pushing to have my in-laws move into). But I think she's viewing the whole thing as "well you guys helped him and 'gave' them a property so why can you guys do the same for us?" - apples to oranges and I think they're not thinking straight involving their MIL in the picture (the MIL even felt awkward about the whole thing, because they wanted her to say she would commit to moving in ASAP but she didn't want to because of her other property and also how it would be weird for her to move into a place that's co-owned by our family - thank goodness for her other property that she just renovated and has plans to move into).

TL;DR and long story short, I agree that it is best to pursue selling. We (my oldest brother and I) pushed for and convinced my brother and parents to have my brother inquire with the realtor who has helped them on selling price if they were to sell as-is vs renovated turnkey. And this felt like a pain point because it seemed to go directly against my brother's purported agenda of holding the place in the family then claiming it for his MIL after two years.
Obviously selling as-is would reduce the amount of headache involved with finding a contractor and dealing with all that, and especially alleviate my brother who lives closest of having to deal with all of it (since he's pretty much going to be the point of contact). At the same time, I was thinking that if we each poured some money into the renovations to 'flip', it could pay dividends. If it's going to cause my brother additional stress that he doesn't want or need though, it seems selling as-is is the best thing. I think right now the plan is to think through all the pros/cons of the options and also wait to see what the realtor says and might suggest (obviously he'll be biased about what he'd suggest or recommend but I think we want to just know, overall, what he thinks on pricing).
Then we have my dad sitting their playing Doubting Thomas the entire time - "there's so much work you guys are going to have to pay for to put into this place to fix it up".."nobody will want to buy it"... "we're going to lose money off this place" (even though they bought it for $175k and it will likely not sell for less than $600-700k minimum even as-is. His "realities" are so screwed up from his anxiety and depression). I think at this point we've largely gone the route of 'acknowledging' what he says as the way he *feels* about the situation and keeping things there.... most of the time he's just ranting about how hard it is and how it's going to be a huge pain which is totally unhelpful towards any sort of conversation or progress.
 
« Last Edit: June 07, 2020, 09:56:41 AM by jeromedawg »

waltworks

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Re: Options for my parents' rental property in the Bay Area
« Reply #5 on: June 07, 2020, 09:59:10 AM »
I'd hire a professional mediator - like, now. Someone who works with an estate attorney maybe, or just someone who deals with wealthy families (rather than the court-appointed mediator folks who work out how much redneck Cletus owes to the body shop).

A neutral party can go a LONG way toward resolving this sort of thing without ruining relationships, and it's not expensive (at least in the grand scheme of things). It sounds like several people involved are maneuvering to put one over on everyone else, and you've got mental health issues, people who are connected at different levels in the family, previous "gifts" and misperceptions of same, etc.

But yes, you should just wash your hands of the house, probably, regardless. No fixing up (too easy to disagree about what/how/who fixes), no using the house for "just a few years", etc. You don't want to get to the point where you wish you didn't even own it, and you can get there faster than you think.

RE and family... it just sucks. My parents and I went in together on a condo when I started grad school, with the understanding that I could purchase it from them at any time for the mortgage balance+closing costs, once I had sufficient credit to do so (I should have gotten a credit card when I was younger, c'est la vie). In the 5 year interim, my mother died and my father's personality changed dramatically. He took $50k of equity out of the condo in a refinance (I was paying the mortgage/insurance/taxes the entire time we owned it) and told me my "rent" was going up. After a few months of panic and angry phone calls, we purchased the condo at a "deal" for about $100k more than the mortgage balance (but under the market price). He literally cost my wife and I our entire net worth when we were in our 20s. We have never spoken since (and he's never met his grandchildren), and even though I feel like I did nothing wrong, it still keeps me up at night sometimes. Horrible all around.

Don't let something like that happen to you guys. You can keep yourself from getting screwed over AND keep your relationships, if you do it right.

-W
« Last Edit: June 07, 2020, 10:03:28 AM by waltworks »

KBecks

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Re: Options for my parents' rental property in the Bay Area
« Reply #6 on: June 07, 2020, 10:01:44 AM »
I know hardly anything about real estate investing but I would wonder about selling and doing something called a 1031 exchange into an easier type of investment for your parents.  This 1031 exchange helps avoid taxes from selling.

You would need to research and learn a lot about how it all works but it may help ease your dad's concerns.

Best wishes.

waltworks

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Re: Options for my parents' rental property in the Bay Area
« Reply #7 on: June 07, 2020, 10:04:03 AM »
I know hardly anything about real estate investing but I would wonder about selling and doing something called a 1031 exchange into an easier type of investment for your parents.  This 1031 exchange helps avoid taxes from selling.

You would need to research and learn a lot about how it all works but it may help ease your dad's concerns.

Best wishes.

1031 would have to be used to purchase other rental RE, though (like kind investment), and they don't want to be landlords.

-W

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #8 on: June 07, 2020, 10:30:44 AM »
I'd hire a professional mediator - like, now. Someone who works with an estate attorney maybe, or just someone who deals with wealthy families (rather than the court-appointed mediator folks who work out how much redneck Cletus owes to the body shop).

A neutral party can go a LONG way toward resolving this sort of thing without ruining relationships, and it's not expensive (at least in the grand scheme of things). It sounds like several people involved are maneuvering to put one over on everyone else, and you've got mental health issues, people who are connected at different levels in the family, previous "gifts" and misperceptions of same, etc.

But yes, you should just wash your hands of the house, probably, regardless. No fixing up (too easy to disagree about what/how/who fixes), no using the house for "just a few years", etc. You don't want to get to the point where you wish you didn't even own it, and you can get there faster than you think.

RE and family... it just sucks. My parents and I went in together on a condo when I started grad school, with the understanding that I could purchase it from them at any time for the mortgage balance+closing costs, once I had sufficient credit to do so (I should have gotten a credit card when I was younger, c'est la vie). In the 5 year interim, my mother died and my father's personality changed dramatically. He took $50k of equity out of the condo in a refinance (I was paying the mortgage/insurance/taxes the entire time we owned it) and told me my "rent" was going up. After a few months of panic and angry phone calls, we purchased the condo at a "deal" for about $100k more than the mortgage balance (but under the market price). He literally cost my wife and I our entire net worth when we were in our 20s. We have never spoken since (and he's never met his grandchildren), and even though I feel like I did nothing wrong, it still keeps me up at night sometimes. Horrible all around.

Don't let something like that happen to you guys. You can keep yourself from getting screwed over AND keep your relationships, if you do it right.

-W


Thanks for sharing your story - sorry to hear that things went south so fast.


I'll have to research the options. My family will be in a major fit if I say I'm going to introduce a mediator (and my dad will go bonkers and it'll add to his current anxiety). I think, right now, everyone *wants* to defer to one another in a sense. It's kind of hard to do that when not everyone is forthcoming. However, we are also used to our family not being fully forthcoming in other areas and it's somewhat dysfunctional like that.
Anyway, it's not just my brother who wants to keep it - my mom seems to want to hold it for "multi-use" purposes. I think we have to lay out then that it's fine if she *wants* that but she and my dad are going to have to pay for the ongoing maintenance of it so think twice because he wants to have nothing to do with it (even aside from his mental state, I think he didn't want to hold these properties - it's just that now, it's magnified).
Really I think they (my mom and brother) are having a bit of a "but I want to have my cake and eat it too" moment with this whole thing - yes it would be nice to keep as a multi-use type property that doesn't cost a dime to keep and maintain and that everyone can use fairly without feeling like they got the short-end of the stick, just like it would be nice having clouds made of cotton candy and unicorns that poop ice cream.


jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #9 on: June 07, 2020, 10:33:46 AM »
I know hardly anything about real estate investing but I would wonder about selling and doing something called a 1031 exchange into an easier type of investment for your parents.  This 1031 exchange helps avoid taxes from selling.

You would need to research and learn a lot about how it all works but it may help ease your dad's concerns.

Best wishes.
I know hardly anything about real estate investing but I would wonder about selling and doing something called a 1031 exchange into an easier type of investment for your parents.  This 1031 exchange helps avoid taxes from selling.

You would need to research and learn a lot about how it all works but it may help ease your dad's concerns.

Best wishes.

1031 would have to be used to purchase other rental RE, though (like kind investment), and they don't want to be landlords.

-W

My dad definitely doesn't want to deal with another 1031 (we did that as part of the arrangement for the place I'm in now), and he definitely wants to reduce his landlord position. For a time he was looking at the option/route of Delaware Statutory Trusts but just didn't follow through with it, which probably isn't a bad thing.

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #10 on: June 07, 2020, 10:56:07 AM »
BTW: wanted to ask as I was just reminded about this but what about the whole idea of the property being 'held' and then passed on via inheritance (once one or more parents passes) where it receives the stepped-up cost basis and thus capital gains taxes are minimized when selling? I'm assuming this applies to depreciation recapture as well? This would probably help my dad with his anxiety around capital gains but then the trade-off is having to hold the place and dealing with that until someone dies.... doesn't seem that desirable.

I think if my parents were to hold it for this reason, *they* would need to set the strict ground rules on this being a guest house - definitely no long-term use

Another thought that crossed my mind is just getting the house back on the rental market but using property management this time around until at least one spouse passes (where the surviving spouse can then get out of it and sell with minimal cap gains incurred. My parents are *awful* landlords who rented below-market, barely raised rent, and didn't update/maintain/repair this property. So wondering if property mgmt would be a good way to take that part of the headache out. Yet the issues would still be 1) finding a good property mgmt company and 2) still having to deal with tenant eviction, etc later down the road (e.g. paying the tenant to leave, which would still be much less than capital gains)

« Last Edit: June 07, 2020, 01:57:28 PM by jeromedawg »

SeaWA

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Re: Options for my parents' rental property in the Bay Area
« Reply #11 on: June 07, 2020, 08:05:12 PM »
+1 to everything Waltworks said.

1) Get a mediator
2) Work to sell ASAP

I've been down this road with my own family. It was a nightmare.

The thing about selling is that it is easy to show that everyone is getting an equal cut. Also, if someone values the property more than the selling price, they can buy it on the open market. Again, everyone is sure that the price is fair (and the split is even) when you use the market to determine the value.

I wish you the very best on this. I hope yours does not become another cautionary tale.

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #12 on: June 07, 2020, 09:10:22 PM »
+1 to everything Waltworks said.

1) Get a mediator
2) Work to sell ASAP

I've been down this road with my own family. It was a nightmare.

The thing about selling is that it is easy to show that everyone is getting an equal cut. Also, if someone values the property more than the selling price, they can buy it on the open market. Again, everyone is sure that the price is fair (and the split is even) when you use the market to determine the value.

I wish you the very best on this. I hope yours does not become another cautionary tale.

Thanks! I think we likely will end up selling just to relieve the headache. In the case of selling do we still want to involve a mediator? What exactly is the mediator's role? To make sure there's 'accountability' with splitting three ways and also to get the will modified (as needed)? We still need to get their will modified to sort out the property we're in down here and the split on that.

waltworks

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Re: Options for my parents' rental property in the Bay Area
« Reply #13 on: June 07, 2020, 09:59:27 PM »
A mediator's role is to be an objective outside party who can listen to everyone and then synthesize the situation and help everyone understand each other's viewpoints and hopefully get them to collectively agree to a solution.

It sounds stupid and new-agey, but if you get someone halfway decent, it's an excellent way to resolve complex and emotionally fraught situations. Nobody wants to yell at the mediator - they're just doing their job. And they're neutral about all of it and don't have any lingering resentments over your disaster of a 13th birthday party or who dropped out of college and lived at home for 2 years and didn't pay rent.

I think you could introduce the concept without upsetting anyone.

-W

Cassie

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Re: Options for my parents' rental property in the Bay Area
« Reply #14 on: June 07, 2020, 10:23:37 PM »
Unless your parents are very old and not capable of handling their affairs they should not involve their kids. They should list and sell it.

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #15 on: June 07, 2020, 10:33:35 PM »
Unless your parents are very old and not capable of handling their affairs they should not involve their kids. They should list and sell it.

My dad is a mental wreck right now (depression and anxiety) and cannot rationally think - the reason why we have gotten involved is because he's unwilling to take any action and just sits around moping and complaining about how he has it the worst (out of everyone in the world). So yea, I would consider him incapable of handling this affair. My mom needs help understanding what her options are and would have no clue otherwise so has asked us to step in and help (not just with this but with pretty much everything else since my dad's mental health has gone downhill around the beginning of the year). So I think we're in a position where we're forced to help them through these decisions. And yes, right now the direction we're starting to head is to sell. But we are trying to get all the information on options and such from their realtor and probably their CPA soon. I'll look into a mediator as well, especially for if things start getting out of hand. Right now, we've only had one conversation about this and are hashing out details on the side. My brother (who originally wanted his MIL in) is now looking at the option of selling and thinks that's the easiest way to solve the problem even if it means 'sacrificing' the stepped-up basis and paying cap gains, etc. But I think he sees/agrees that there would be a blurring of line trying to keep this as a jointly managed property.
« Last Edit: June 07, 2020, 11:58:16 PM by jeromedawg »

KBecks

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Re: Options for my parents' rental property in the Bay Area
« Reply #16 on: June 08, 2020, 05:01:13 AM »
I know hardly anything about real estate investing but I would wonder about selling and doing something called a 1031 exchange into an easier type of investment for your parents.  This 1031 exchange helps avoid taxes from selling.

You would need to research and learn a lot about how it all works but it may help ease your dad's concerns.

Best wishes.


1031 would have to be used to purchase other rental RE, though (like kind investment), and they don't want to be landlords.

-W

I was thinking they could 1031 into a real estate investment with property management or into a syndicate or perhaps REIT type fund?  But like I said, I do not know much about these things at all.

I don't quite understand why the proceeds from this sale would be gifted to the kids and not held by the parents. 

The kids sound a bit overactive in this situation. If your mom and dad want to hold the property and fix it up, then hire a property manager.  If they want to sell as-is, sell to another investor.  If they want to fix it up and sell, hire a general contractor to manage the repairs for them?


Car Jack

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Re: Options for my parents' rental property in the Bay Area
« Reply #17 on: June 08, 2020, 06:07:33 AM »
I'm sorry, but this is really easy.  Sell the place and pay the cap gains taxes.

All these schemes are just bullshit.  I've heard of things like this when the last parent dies in a family and the house is split between the kids.  One of my good friends was in this situation.  A cousin came out of the woodwork at the funeral and declared that she and her fiance were going to take over the house and fix it up.  Take it over?  She wasn't part of the will, whatsoever.  And her finances?  She had nothing, having just graduated college.  Her fiance?  Still in graduate school with less than nothing.  This talk about the brother's mother in law?  Come on.  If the Mother in law wants to live in this house, she can put in an offer to buy it with her own credit.  In nearly every instance when kids inherit a house, it's pretty universally the best idea to sell the house.  In this case, for the live parents, it's clearly the best solution.  So what if the parents have to pay cap gains?  No....really.  If the gain is this much, why is paying cap gains tax so bad?

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #18 on: June 08, 2020, 10:52:25 AM »
I'm sorry, but this is really easy.  Sell the place and pay the cap gains taxes.

All these schemes are just bullshit.  I've heard of things like this when the last parent dies in a family and the house is split between the kids.  One of my good friends was in this situation.  A cousin came out of the woodwork at the funeral and declared that she and her fiance were going to take over the house and fix it up.  Take it over?  She wasn't part of the will, whatsoever.  And her finances?  She had nothing, having just graduated college.  Her fiance?  Still in graduate school with less than nothing.  This talk about the brother's mother in law?  Come on.  If the Mother in law wants to live in this house, she can put in an offer to buy it with her own credit.  In nearly every instance when kids inherit a house, it's pretty universally the best idea to sell the house.  In this case, for the live parents, it's clearly the best solution.  So what if the parents have to pay cap gains?  No....really.  If the gain is this much, why is paying cap gains tax so bad?

I know hardly anything about real estate investing but I would wonder about selling and doing something called a 1031 exchange into an easier type of investment for your parents.  This 1031 exchange helps avoid taxes from selling.

You would need to research and learn a lot about how it all works but it may help ease your dad's concerns.

Best wishes.


1031 would have to be used to purchase other rental RE, though (like kind investment), and they don't want to be landlords.

-W

I was thinking they could 1031 into a real estate investment with property management or into a syndicate or perhaps REIT type fund?  But like I said, I do not know much about these things at all.

I don't quite understand why the proceeds from this sale would be gifted to the kids and not held by the parents. 

The kids sound a bit overactive in this situation. If your mom and dad want to hold the property and fix it up, then hire a property manager.  If they want to sell as-is, sell to another investor.  If they want to fix it up and sell, hire a general contractor to manage the repairs for them?


Yea, years ago my dad was considering a 1031 DST (Delaware Statutory Trust) which is supposedly hands-off and you continue to receive some money from it. This may not be a bad idea but it was briefly investigated then dropped. That might be something up for consideration at this point though.

I think the whole gifting thing are my parents and my brother being too eager to implement their own 'ideas' of how the property might be used.

As far as us being "a bit overactive" I would agree but as I explained already, the reason is that my dad is barely able to mentally function (he is virtually impaired by his anxiety and depression - if you've ever tried to reason with a person in this state, it's nearly impossible. We essentially have to move forward on making decisions for him while pretty much acknowledging but discounting his concerns as not valid). My mom, if she had to deal with all this on her own, would have zero idea as to what she do - already she's asking my brother who lives near them to help with A LOT of other things. So she could have asked him to take this on but because it's in their will and because it would be a lot for him to take on himself, all of us are involved to try to come up with a solution. This is not ideal but this isn't as simple a solution as "your mom and dad can decide what to do - just let them be" - no, my dad doesn't want to do *anything* and my mom will asking us to step in and help. Basically, I'm sure my parents wouldn't want or wish for any of us to be this active in their decisions around their assets but they  are *asking* (or at least my mom is, more a cry for help) for us to help at this point.
« Last Edit: June 08, 2020, 11:02:33 AM by jeromedawg »

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Re: Options for my parents' rental property in the Bay Area
« Reply #19 on: June 08, 2020, 11:51:31 AM »
Ignore the fact that it's in the will: wills are irrelevant while the person who wrote it is still alive.

It seems to me that the only reason against selling is the Capital Gains Tax, to which there are two unarguable defences: the first is that I don't let anyone, not even the tax man, make such major decisions for me, and the second is that the tax is only payable because there have been gains and is only payable on a small part of the gains: your parents still come out way ahead on the transaction.

Car Jack is right: sell the place as is, pay the capital gains on the profit and bank the rest.  If any family member wants to buy it they can do so at market value.

If there is anything you can do to get out from under the arrangement you have on your own home sooner rather than later that would be good too.

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #20 on: June 08, 2020, 12:31:14 PM »
Ignore the fact that it's in the will: wills are irrelevant while the person who wrote it is still alive.

It seems to me that the only reason against selling is the Capital Gains Tax, to which there are two unarguable defences: the first is that I don't let anyone, not even the tax man, make such major decisions for me, and the second is that the tax is only payable because there have been gains and is only payable on a small part of the gains: your parents still come out way ahead on the transaction.

Car Jack is right: sell the place as is, pay the capital gains on the profit and bank the rest.  If any family member wants to buy it they can do so at market value.

If there is anything you can do to get out from under the arrangement you have on your own home sooner rather than later that would be good too.

What about taking into the consideration something like a 1031 DST where my parents would just exchange it into something producing a small "passive income" stream for them while deferring cap gains. The idea then would be that if one of them passes, the surviving spouse could sell that DST (although I don't know all the logistics on selling and 'cashing out' on a DST). Or if the surviving spouse wants to keep it they can and it would just be in the inheritance later down the road, where we would sell it and split three ways. Capital gains will presumably have been greatly reduced/minimized per the stepped-up basis in either case.

In terms of selling the place as-is vs fixing up minimally, I think there could be complications even with fixing it up minimally - my dad is freaking out about how the roof repairs/replacement will cost too much and they'll have no money for it (which isn't true). My mom is frugal too so wants the bare minimum. I don't know but maybe there's *some* amount they'd be OK with putting into it which would add a lot of value where they'd see a better return selling with those fixes vs as-is.

Do you guys think things like repairing/replacing the roof, adding ventilation, replacing water heater and furnace, etc are worth the cost of renovation in terms of value add when going to resell a place where these kinds of things are dated or need replacement anyway?
« Last Edit: June 08, 2020, 01:04:50 PM by jeromedawg »

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Re: Options for my parents' rental property in the Bay Area
« Reply #21 on: June 08, 2020, 12:37:44 PM »
Ignore the fact that it's in the will: wills are irrelevant while the person who wrote it is still alive.

It seems to me that the only reason against selling is the Capital Gains Tax, to which there are two unarguable defences: the first is that I don't let anyone, not even the tax man, make such major decisions for me, and the second is that the tax is only payable because there have been gains and is only payable on a small part of the gains: your parents still come out way ahead on the transaction.

Car Jack is right: sell the place as is, pay the capital gains on the profit and bank the rest.  If any family member wants to buy it they can do so at market value.

If there is anything you can do to get out from under the arrangement you have on your own home sooner rather than later that would be good too.

What about taking into the consideration something like a 1031 DST where my parents would just exchange it into something producing a small "passive income" stream for them while deferring cap gains. The idea then would be that if one of them passes, the surviving spouse could sell that DST (although I don't know all the logistics on selling and 'cashing out' on a DST). Or if the surviving spouse wants to keep it they can and it would just be in the inheritance later down the road, where we would sell it and split three ways. Capital gains will presumably have been greatly reduced/minimized per the stepped-up basis in either case.
I generally think tax avoidance schemes aren't worth the trouble: you end up muddying the ownership issues and there is a decent chance the taxman will get you anyway either because the scheme was set up wrong or because the rules have changed since the scheme was set up.  Add in the costs of setting it up and the chances of getting sloppy or even criminal advice (good tax avoidance schemes are for the truly rich and cost a fortune, cheap tax avoidance schemes are often either incompetent or rip-offs) are too high for me to be interested.

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Re: Options for my parents' rental property in the Bay Area
« Reply #22 on: June 08, 2020, 12:39:57 PM »
There are a lot of ways to avoid the capital gains and depreciation recapture.

But if we're being honest here, complexity is your enemy when there are this many people involved. Just straight up selling the place is easy for everyone to understand, and leaves a concrete sum of money to divide up however you want to do it.

I don't think kicking the can down the road to save a few bucks in capital gains when you're all (at least this is what it sounds like) wealthy already is worth it when the risk is family strife.

-W

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #23 on: June 08, 2020, 01:00:30 PM »
Haha thanks guys. We'll look to just sell the place in that case. Unless my parents truly want to pursue 'passive income' - but it's never really 'passive' is it? Either all the work is required up front, during or at the end ;)

Dicey

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Re: Options for my parents' rental property in the Bay Area
« Reply #24 on: June 21, 2020, 09:17:18 PM »
Posting to find later when I can read all the responses...

Sibley

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Re: Options for my parents' rental property in the Bay Area
« Reply #25 on: June 23, 2020, 08:04:31 AM »
Somewhat unrelated but very much pertinent....

Your dad is basically incompetent right now due to mental health issues. Hopefully with treatment he'll recover.
Your mom is struggling to cope with everything because your dad is unavailable.
Your brother and his wife are acting kinda squirrel-ey.

You're getting a sneak peak of the future here - don't ignore it. Start planning. If your dad doesn't recover, he may end up legally incompetent. Your mother doesn't seem like she'll handle your father's incompetence or eventual death well. The adult children don't seem to be working together with your parent's best interest in mind. You want to see how this can play out? Go find the Inheritance thread and read it. It can get pretty darn bad, and destroyed relationships is the norm.

Your parents need a solid estate plan, with POAs and whatever else makes sense to protect them. Your father needs intensive treatment for the mental health issues (haven't checked your post history, I assume he's in treatment though). He may need to be evaluated for other medical problems that could contribute. Dementia is one.

And the family as a whole needs to rip the bandaid off this dysfunctional non-communication. If you can't get things working better, then you're headed for disaster and never mind the relationships, they're on borrowed time. In particular, if your brother and his wife are getting grabby because you've had a house given to you, then the facts on exactly how this going to play out needs to be made crystal clear.  Try to head that off.

Good luck.

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Re: Options for my parents' rental property in the Bay Area
« Reply #26 on: June 23, 2020, 08:53:54 AM »
I agree with the last poster here. The problem is not the house. I think you should see a therapist to get some help with your family situation because I see why you are trying to help and I feel for your Mom, and your Dad, but you are basically enabling an unhealthy dynamic to continue. And it's not good for you either.

Samuel

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Re: Options for my parents' rental property in the Bay Area
« Reply #27 on: June 23, 2020, 11:27:59 AM »
Another vote for the "just sell and pay the taxes" plan, assuming your priority is preserving the family relationships.

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #28 on: June 25, 2020, 11:05:35 PM »
Quick update: we decided to just go the route of doing the straight sale. Although all of us, with the exception of my dad, were very much onboard to the idea of getting the place renovated with value-adds rather than selling as-is since it will likely net them significantly more (a place with the exact floorplan and upgrades across the street listed for around $1mil - realtor thinks that if they were to list as-is they could expect to get somewhere between $700-800k. Place needs about $80k worth of work to make it turnkey, which is what most buyers want up there it seems).

My brother and SIL shortly got off that train, understanding it was going in the wrong direction so they're OK. My brother is undertaking the communications and collecting quotes from contractors for the work so he'll kind of be managing at a distance but he did enlist the help of the realtor who referred the contacts for the flooring, roofing, etc and can stay on top of those guys since they're sort of accountable to him as he referred them. My brother has a general contractor who has worked with before to do the rest of the stuff. The conversation on his has died down but most of the drama was just around figuring out the logistics of everything and reassuring my dad that everything would be fine.

So yea, just a straight sale at this point - no vacation home, no gifting of the property down, no in-laws living in it as the guest house, etc.

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Re: Options for my parents' rental property in the Bay Area
« Reply #29 on: June 26, 2020, 02:09:04 AM »
Well done for navigating a tricky family situation with all relationships intact.

Here's hoping the renovation and sale go well for you all.

jeromedawg

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Re: Options for my parents' rental property in the Bay Area
« Reply #30 on: June 26, 2020, 10:16:23 AM »
Well done for navigating a tricky family situation with all relationships intact.

Here's hoping the renovation and sale go well for you all.

Both my brothers are reasonable enough to step back and be understanding of the situation. I think it's stressful enough with what's going on with my dad that we realize it's not cool to act selfishly and add unnecessary drama.

That said, the biggest goal is to relieve my parents of the stress of thinking about this place, so once it's over hopefully this will be one obstacle removed.

Dicey

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Re: Options for my parents' rental property in the Bay Area
« Reply #31 on: June 26, 2020, 10:34:03 AM »
Feels like a good decision. Bay Area prices are still insane.